News and resources for Canada's top financial advisors
Est. 1998
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
The key here is to determine the reasonable expectations of both parties. Those expectations must take into account that relationships between employees and employers are often short-lived and subject to abrupt changes. Firms engage in aggressive recruitment practices and investment advisors are expected to do everything they can to take clients with them when they leave their firms.
In this culture, a damage award based on five years’ lost profits is unreasonable. Within such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure, or the influence it may have had on fellow employees; let alone for so lengthy a period of time.
In Shafrom vs. KRG Insurance Brokers, the Supreme Court further clarified the employment and contract for services relationship as it relates to restrictive covenants as follows:
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
The key here is to determine the reasonable expectations of both parties. Those expectations must take into account that relationships between employees and employers are often short-lived and subject to abrupt changes. Firms engage in aggressive recruitment practices and investment advisors are expected to do everything they can to take clients with them when they leave their firms.
In this culture, a damage award based on five years’ lost profits is unreasonable. Within such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure, or the influence it may have had on fellow employees; let alone for so lengthy a period of time.
In Shafrom vs. KRG Insurance Brokers, the Supreme Court further clarified the employment and contract for services relationship as it relates to restrictive covenants as follows:
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
The key here is to determine the reasonable expectations of both parties. Those expectations must take into account that relationships between employees and employers are often short-lived and subject to abrupt changes. Firms engage in aggressive recruitment practices and investment advisors are expected to do everything they can to take clients with them when they leave their firms.
In this culture, a damage award based on five years’ lost profits is unreasonable. Within such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure, or the influence it may have had on fellow employees; let alone for so lengthy a period of time.
In Shafrom vs. KRG Insurance Brokers, the Supreme Court further clarified the employment and contract for services relationship as it relates to restrictive covenants as follows:
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
Last October, the Supreme Court of Canada released a long-awaited decision clarifying the role of restrictive covenants in an insurance agent’s employment or services contract.
These covenants are written agreements to limit the actions of one or more of the contract’s parties, usually after the employment relationship ends. For example, a restrictive agreement may bar a former employee from providing financial advice from a new office or location within five kilometres of the old office for two years after termination of a contract.
For a court to enforce a restrictive covenant, the stipulations must be clear and reasonable as to time and area. That’s a fundamental prerequisite.
In general, an employment contract is one of personal service. That means, aside from any discussion about non-competition clauses and fiduciary duties, employees are generally free to leave their employment and, upon leaving, compete with their former employers. This can be a painful reality for an employer to accept.
In the financial industry, there’s an implicit acknowledgment that a departing advisor will carry a large portion of his or her client book with him, much to the firm’s detriment: And that there’s inevitably active competition for clients when a relationship ends.
Legal findings
Courts have frequently been called upon to adjudicate a reasonable parting of the ways. But when a court decision is required, all parties lose because the costs of the dispute routinely grow close to the size of any damages that could have taken place had a former employee done his or her worst.
This issue was dealt with not long ago by the Supreme Court in the now infamous dispute between RBC Dominion Securities and Merrill Lynch in British Columbia. In that decision the court held:
The key here is to determine the reasonable expectations of both parties. Those expectations must take into account that relationships between employees and employers are often short-lived and subject to abrupt changes. Firms engage in aggressive recruitment practices and investment advisors are expected to do everything they can to take clients with them when they leave their firms.
In this culture, a damage award based on five years’ lost profits is unreasonable. Within such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure, or the influence it may have had on fellow employees; let alone for so lengthy a period of time.
In Shafrom vs. KRG Insurance Brokers, the Supreme Court further clarified the employment and contract for services relationship as it relates to restrictive covenants as follows:
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
Last October, the Supreme Court of Canada released a long-awaited decision clarifying the role of restrictive covenants in an insurance agent’s employment or services contract.
These covenants are written agreements to limit the actions of one or more of the contract’s parties, usually after the employment relationship ends. For example, a restrictive agreement may bar a former employee from providing financial advice from a new office or location within five kilometres of the old office for two years after termination of a contract.
For a court to enforce a restrictive covenant, the stipulations must be clear and reasonable as to time and area. That’s a fundamental prerequisite.
In general, an employment contract is one of personal service. That means, aside from any discussion about non-competition clauses and fiduciary duties, employees are generally free to leave their employment and, upon leaving, compete with their former employers. This can be a painful reality for an employer to accept.
In the financial industry, there’s an implicit acknowledgment that a departing advisor will carry a large portion of his or her client book with him, much to the firm’s detriment: And that there’s inevitably active competition for clients when a relationship ends.
Legal findings
Courts have frequently been called upon to adjudicate a reasonable parting of the ways. But when a court decision is required, all parties lose because the costs of the dispute routinely grow close to the size of any damages that could have taken place had a former employee done his or her worst.
This issue was dealt with not long ago by the Supreme Court in the now infamous dispute between RBC Dominion Securities and Merrill Lynch in British Columbia. In that decision the court held:
The key here is to determine the reasonable expectations of both parties. Those expectations must take into account that relationships between employees and employers are often short-lived and subject to abrupt changes. Firms engage in aggressive recruitment practices and investment advisors are expected to do everything they can to take clients with them when they leave their firms.
In this culture, a damage award based on five years’ lost profits is unreasonable. Within such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure, or the influence it may have had on fellow employees; let alone for so lengthy a period of time.
In Shafrom vs. KRG Insurance Brokers, the Supreme Court further clarified the employment and contract for services relationship as it relates to restrictive covenants as follows:
Based on court activity, there are a few things to glean about how to develop and enforce restrictive covenants:
When an employee or agent departs, it’s best to attempt to constructively, consensually and proactively work together towards a clean break and not resort to the enforcement of restrictive rights through expensive referral to a court.
Both parties should seek legal advice before entering into a restrictive covenant, and should also consider a robust Mediation and Arbitration clause. Such clauses are highly beneficial in all employment and/or services contracts. They can ensure cost reductions in resolving disputes; quicker resolution of disputes; and the possibility for more creative resolution of disputes.
And all that’s good.
(06/01/09)
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